Allegations of “Fake News” are all the rage (and outrage) these days. Yet the worst penalty for “fake news” is a simple loss of trust. The individual or media organization is likely to be doubted, by at least some, once they are caught disseminating “fake news.” But what happens if the “fake” statement — the lie — is made to a court or in a disclosure statement to investors? If proven, loss of trust is the least of your worries. There are (and should be) real penalties if you lie to investors or to the courts. It appears that some California cities may soon be finding out about those penalties — but it is the local taxpayers that will be stuck with the bill.

Several California cities have sued big energy companies for damages that the cities expect from global warming or climate change. The allegations made by the cities in court documents are very specific. Oakland, for instance, alleged in its lawsuit that by 2050 it would experience a 100-year flood once every 2.3 years. The lawsuit against energy companies alleges that global warming has already caused an accelerated rise in sea level in San Francisco Bay. That is what Oakland told the court. When it was making disclosures to potential bond investors, however, Oakland had a much different story to tell: “The City is unable to predict when … sea rise or other impacts of climate change or flooding from a major storm, could occur.” It is pretty hard to see how the two statements can be reconciled.

San Francisco has the same problem. In its lawsuit against energy companies it alleges that sea-level rises caused by global warming is already responsible for flooding in low-lying areas. Its statement to potential bond investors, however, protests that city is unable to predict whether or when such climate change effects might occur. And other California cities and counties that have sued energy companies over climate change have similar conflicts in what they allege in their litigation and what they disclose to potential bond investors.

Both statements cannot be true. Either the cities are unable to predict whether or when they will suffer any effects from climate change, as they are telling the potential bond investors, or they are already suffering (or will suffer in the near future) devastating consequences from climate change. One could hardly be criticized for concluding that the cities and counties involved in these lawsuits have either lied to the courts or to their bond investors. If they have lied to either, there is big trouble ahead.

The Securities and Exchange Commission polices disclosures to investors. This is a job they take very seriously. False statements in the disclosures can lead to multi-million-dollar penalties. The California courts are also concerned when parties to a lawsuit lie in their pleadings. State law gives the court power to impose financial penalties on a party or the party’s attorney.

That protects the integrity of the courts and the pocket books of bond investors, but what about the taxpayers? Any penalties imposed on a city or county by a court or the SEC will likely be paid by the taxpayers. Taxpayers need to wake up and pay attention to what their local government leaders are doing. If it turns out that those leaders lied either to investors or the courts, it will be the taxpayers that have to pay the bill.

Anthony T. Caso is a professor the director of the Claremont Institute’s Constitutional Jurisprudence Clinic at Chapman University, Fowler School of Law.

Join the Conversation

We invite you to use our commenting platform to engage in insightful conversations about issues in our community. Although we do not pre-screen comments, we reserve the right at all times to remove any information or materials that are unlawful, threatening, abusive, libelous, defamatory, obscene, vulgar, pornographic, profane, indecent or otherwise objectionable to us, and to disclose any information necessary to satisfy the law, regulation, or government request. We might permanently block any user who abuses these conditions.

If you see comments that you find offensive, please use the “Flag as Inappropriate” feature by hovering over the right side of the post, and pulling down on the arrow that appears. Or, contact our editors by emailing moderator@scng.com.